Interest-rate cuts were supposed to make everything easier. Cheaper mortgages, cheaper borrowing, and higher stock valuations. Instead, the Bank of Canada has held its policy rate at 2.25% since October 2025. Inflation has remained above the 2% target, and the bank says upside risks have increased.
That doesn’t mean rates are heading higher, but could mean investors shouldn’t build a portfolio assuming cuts will arrive on schedule. That said, some businesses can work either way.
Source: Getty Images
Higher for longer
Higher rates create obvious losers. Borrowers pay more, highly leveraged companies face higher refinancing costs, and rate-sensitive sectors can lose some appeal. Insurers are different.
Life insurers collect premiums today against claims that can arrive years or decades later. They invest much of that money in bonds and other fixed-income assets designed to match those future obligations.
When older investments mature, higher market rates can let insurers reinvest at better yields. The benefit isn’t automatic because changing rates also affect liabilities, bond values, customer behaviour, and markets. Therefore, an insurer doesn’t necessarily need falling rates to make money. That’s one reason Manulife Financial (TSX: MFC) catches my attention.
MFC
Manulife operates insurance, wealth management, and retirement businesses across Canada, Asia, and the United States. That mix gives it several earnings engines. Insurance premiums create long-term investment assets, while wealth management benefits as customers save and markets grow.
Second-quarter core earnings increased 12% year over year to $1.9 billion. Core earnings per share (EPS) climbed 16% to $1.09, while core return on equity reached 16.3%. New business is growing too. Annualized premium-equivalent sales increased 21% to $2.7 billion.
Manulife is also dealing with an old problem. The company announced a deal in August to transfer biometric risk tied to $3.2 billion of long-term-care reserves to Munich Re. Once completed, Manulife expects its three recent long-term-care reinsurance transactions to have reduced its sensitivity to that legacy risk by 24%.
Reducing that exposure leaves a cleaner business for investors to value while management directs capital toward faster-growing markets, including Asia and wealth management. The balance sheet has improved at the same time. Manulife’s financial leverage ratio fell to 22.2% from 23.6% a year earlier.
Getting paid
Manulife currently pays $0.49 per share quarterly, or $1.94 annually. At $61.98, that produces a dividend yield of about 3.1%. The stock also trades around 13 times forward earnings. That’s not the cheapest Manulife has been, especially after a strong run, but earnings are rising and the risk profile is improving.
Investors looking for Canadian dividend stocks aren’t buying Manulife for the yield alone. The stronger thesis is dividend growth combined with expanding earnings and a business that can handle different rate environments. Holding shares inside a Tax-Free Savings Account (TFSA) with sufficient contribution room could also keep eligible dividends and capital gains tax-free.
That said, higher rates aren’t pure upside. They can pressure bond values, affect policyholder behaviour, slow borrowing, and create credit problems if households or businesses struggle with debt. Manulife’s wealth-management results also depend on market performance. The shares sit close to their 52-week high, so investors aren’t buying after a major selloff.
Bottom line
I wouldn’t buy Manulife because I expect rates to stay high forever. I’d buy it because it doesn’t need rapid rate cuts to make the investment case work.
Core earnings are growing, new business is expanding, legacy long-term-care risk is shrinking, and investors collect a dividend while management keeps improving the business.
If rates stay higher for longer, Manulife has ways to benefit. If they fall, its insurance and wealth businesses don’t disappear. That’s the flexibility I want when the rate outlook refuses to cooperate.
